In recent years, new technologies, and new players more adept at these technologies, emerged in the financial system. The pandemic highlighted the importance of and reliance on new technologies in the provision of financial services. At the same time, these technologies resulted in new business models. In particular, open finance now enables different players to “plug and play” and provide financial services to customers. Platform-based business models, on the other hand, enable financial firms to provide services based on the licences they have while the front-end customer platform is owned by a technology firm. Decentralised finance, meanwhile, aims to provide financial services without intermediaries, using automated protocols enabled by distributed ledger technology and smart contracts to facilitate transactions.
The emergence of big techs also resulted in a number of technological interconnections and interdependencies due to big techs’ different interactions with the financial system. Big techs may provide a customer-facing platform where different financial firms offer their services, or big techs could offer the services directly. Big techs may also partner with financial firms on specific products or services or provide third-party services to firms and financial market infrastructures (FMIs).
Firms’ increased reliance on technology and the additional complexity and interconnections that technology has brought to the financial ecosystem pose operational risks not only for individual institutions but also for the financial system.
These developments highlight the importance of enhancing authorities’ ability to assess and address the operational risks posed by developments in the technological environment from a systemic perspective.
This BIS paper looks at operational resilience through a macroprudential lens